142 Understanding the Numbers
Denise said she could meet then and added one more piece of advice.
“ When you do your cost estimates, do them from the customer ’s viewpoint.
Assume that your system is fully transparent to your customer and that they
must see the value of anything you charge to them.”
TRANSACTION PROCESSING—MEETING 2
The group started by explaining their transaction-processing chart (see Ex-
hibit 4.6).
“Right now,” said Carol, “the data discussed last time, 20,000 transactions
per day on average, is correct, but our current peak demand is closer to 80,000.
Our system today can process close to 120,000 transactions per day, so we do
have excess capacity because of the cost of acquiring technology in certain
sizes. Likewise, the 80,000 peak demand represents about 50% of the capacity
of our personnel because of the decision we made in hiring and training the six
people in anticipation of future demand. As we said last week, using part-time
people may have been cheaper in the short run, but we decided to fully staff
for the future.
“So, we have developed the following analysis (see Exhibit 4.7). For the
personnel costs, we took 50% of them and charged it to an idle-capacity ac-
count. Clearly, the other $375,000 is, to our customers, value added.
“Likewise, we have some idle capacity in our hardware and software sys-
tems. From a customer point of view, we feel that the amount they should see
as value added is our peak capacity of 80,000. Although they only average
20,000 transactions per day, when they have their peaks they need us to be
ready, so this is value added and not excess. Only 40,000 currently is idle
(120,000 capacity less the 80,000 peak). This means that $450,000 of the sys-
tems costs ($1.35 million×[40,000/120,000]) is not adding value to our current
customers. So we feel that currently about $825,000 ($375,000 personnel and
$450,000 systems) is idle and not chargeable to our customers. The other
EXHIBIT 4.6 Transaction-processing volume.
TimeAverage per day
20,000 transactionsPeak demand per day
80,000 transactionsSystem capacity per day
120,000 transactions